Saturday, April 21, 2007

Are Savings becoming worthless as inflation hits 16 year high?

I was quite interested to hear BBC Radio 4's You and Yours reporting that inflation had hit a 16 year high as opposed to the silly claim that it had hit a 10 year high.

However the program also highlighted the issue of savings not attracting enough interest to cover inflation (certainly after tax) which means that you may as well spend money now and not save, as money in the back will lose value.

This is not good. It is already the case that there is no longer any point in many people saving for a pension as they will lose any benefits in means testing. It is therefore no surprise that the savings ratio is low and likely to decline.

Interest rates are set to rise next month which may address that, but it will also cause a lot of pain for people who are already over extended on their borrowing. Part of the problem is the economy only has blunt levers to control it. When they move, people will be hurt. The only questions are how many, and how badly.

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